iPhone-maker predicts slowing gadget sales just as holidays loom

Apple’s main assembly partner Hon Hai Precision Industry Co projected sales of gadgets like smartphones will drop sequentially this quarter, spurring concerns that chip and component shortages may affect iPhone production before the holiday season.

The Taiwanese company, the flagship unit of Foxconn Technology Group, is also targeting electric vehicles to diversify its business beyond making gadgets for Apple, which accounts for about 50% of its revenue. (REUTERS)

Apple Inc.'s main assembly partner Hon Hai Precision Industry Co. projected sales of gadgets like smartphones will drop sequentially this quarter, spurring concerns that chip and component shortages may affect iPhone production before the holiday season.

Sales at the Taiwanese manufacturer's consumer electronics business, which includes the iPhone, will decline this quarter compared with the previous three months, the company said Thursday. The downbeat projection caught analysts by surprise, given the third quarter is often the peak production season for a global electronics industry that scrambles every year to get devices in front of shoppers before the year ends.

The forecast raises questions about whether brands such as Apple, which is preparing to bring out the latest iPhone, will be able to meet demand fueled by the pandemic. A persistent shortage of chips and other parts is weighing on the output of iPhones, gaming consoles and servers, while consumers continue to snatch up devices for remote work, home-schooling and entertainment needs.

Apple warned analysts about a component shortage in April and said in late July that supply constraints will affect the iPhone and iPad in the current quarter. Hon Hai Chairman Young Liu said in May that component shortages will affect shipments by 10% this year. In recent weeks, several chipmakers and car firms have said the chip crunch is far from over.

On Thursday, Liu said high comparison numbers in the previous quarter as well as product transitioning will result in the slight sequential sales decline in the consumer electronics unit. Total revenue will be little changed sequentially, Hon Hai said. Component shortages will last into the second quarter of next year, and the issue is having a limited impact on Hon Hai, Liu said.

Hon Hai's second-quarter net income rose to NT$29.8 billion ($1.07 billion), beating the NT$25.7 billion average of analysts' estimates. Sales in the three months ended June rose 20% to NT$1.35 trillion, according to numbers reported previously.

To ensure sufficient supplies going forward, Hon Hai, the world's largest contract electronics manufacturer and main assembler of iPhones, has struck various semiconductor pacts. It agreed to acquire a mature 6-inch wafer plant from Macronix International Co, and is setting up a chip joint venture with Yageo Corp.

The Taiwanese company, the flagship unit of Foxconn Technology Group, is also targeting electric vehicles to diversify its business beyond making gadgets for Apple, which accounts for about 50% of its revenue.

The company will build electric-vehicle plants in various regions, including the U.S., where it is still looking for a production site, Liu said. It plans to start mass production of EVs in Thailand and the U.S. in 2023, he said. The company may consider setting up an EV plant in Europe, Liu said.

Foxconn has created an open EV platform, inked a manufacturing deal with U.S.-based Fisker Inc and reached an agreement to partner with Stellantis NV on a joint venture to develop digital car cockpits. It has also struck a multibillion-dollar EV partnership with Thailand's state-owned conglomerate PTT Pcl.

Foxconn is among a coterie of suppliers and assemblers set to vie for a role in the production of a potential Apple car.